tag:blogger.com,1999:blog-582368152716771238.post4151485251152781194..comments2024-03-29T07:18:14.271-05:00Comments on The Grumpy Economist: Tax Oped -- full version John H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger30125tag:blogger.com,1999:blog-582368152716771238.post-47534576591870800372016-03-11T13:00:40.025-06:002016-03-11T13:00:40.025-06:00John:
I agree that separating the collection proc...John:<br /><br />I agree that separating the collection process from the "subsidy" process is an excellent idea. However, I would change "subsidy" to standard deduction/progressivity/safety-net.<br /><br />The revenue collection process should be as efficient as possible. Because of the legacy problem of taxes embedded in gross salary, a flat tax on income is best. Employers would withhold the correct percentage of salary, and with consumption only taxes, there would be no need for employees to file annual tax returns at all.<br /><br />On the corporate end, the tax rate should be the same as that on employees. There should be no double taxation.<br /><br />There should be no subsidies, however, with a Unconditional Basic Income set at 100% of the poverty line, we could eliminate federal welfare, and have a highly progressive effective tax rate. For those paying taxes, the UBI would replace deductions for mortgage interest, medical payments, etc.<br /><br />The effective tax rate would smoothly go from negative toward the flat rate. Distribution would be monthly and exactly the same for every citizen (adults would receive more than children). It would eliminate citizen poverty and reduce income inequality, while treating everyone equally. NedWhttps://www.blogger.com/profile/10999532144479384924noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-7173929543169386992016-02-13T18:10:33.192-06:002016-02-13T18:10:33.192-06:00Anonymous,
"If you just hold 100,000 acres o...Anonymous,<br /><br />"If you just hold 100,000 acres of land in a way that is so unproductive that you cannot cover the land tax, then it is good that there are incentives that push you to transfer the land to someone who can."<br /><br />I understand what you are saying, but a land tax where taxes are settled in nominal monetary terms does not accomplish that.<br /><br />Is a field of winter wheat generating $2,000 of income an acre any less productive than a field of summer corn generating $5,000 of income an acre? How do you come up with a singular land tax system where the same plot of land has a variety of uses - each with a different return on investment?<br /><br />With an income tax, the seller of goods is only taxed on the income that he receives from the sale of goods. The corn farmer is only taxed on the monetary value of the corn he / she is able to sell. The wheat farmer is likewise only taxed on the wheat he / she is able to sell.<br /><br />FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-26086821074932967152016-02-13T10:32:23.038-06:002016-02-13T10:32:23.038-06:00Anonymous,
"If you just hold 100,000 acres o...Anonymous,<br /><br />"If you just hold 100,000 acres of land in a way that is so unproductive that you cannot cover the land tax..."<br /><br />Land can be productive over a significant period of time and yet go through over performing and underperforming periods. This happens all of the time with crop rotation and with seasonal changes.<br /><br />The question isn't whether the land is / is not productive, the question is whether government can devise a land tax system that distinguishes between "lack of effort" productivity changes from "natural cause" productivity changes.<br /><br />Droughts and other natural phenomenon still happen. Lack of crop rotation will cause land will go fallow. Either (drought or crop rotation) may cause a decline in farmland productivity. Your plan is to tax land as if natural changes in productivity ever happen?<br /><br />"Surely if the land in question is valuable at all, you can also use it as a collateral to finance that consumption..."<br /><br />Yes I could use the land to finance that consumption (borrow against it), but it is unlikely that I would get a floating interest rate on a loan from a bank to reflect the natural changes in the productivity of the land.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-53717643785901849182016-02-12T13:48:50.187-06:002016-02-12T13:48:50.187-06:00Frank, that is exactly the point! If you just hold...Frank, that is exactly the point! If you just hold 100,000 acres of land in a way that is so unproductive that you cannot cover the land tax, then it is good that there are incentives that push you to transfer the land to someone who can. And if you want to hold that land simply for your personal enjoyment (consumption), you should pay for that, one way or the other. Surely if the land in question is valuable at all, you can also use it as a collateral to finance that consumption. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-33138223404308778702016-01-29T12:45:40.571-06:002016-01-29T12:45:40.571-06:00David,
"I think your dismissal of property t...David,<br /><br />"I think your dismissal of property taxes as "bad" (discouraging wealth accumulation) is premature, as "everything" depends on real property. Thus, a property tax would have weak (if any) marginal effects."<br /><br />Except the government does not accept real property to settle a tax bill. If I have 100,000 acres of land, the government will not accept 1,000 acres to pay a 1% land tax. The problem is forced liquidation.<br /><br />Taxing property may force the owner to sell of some of the land to pay the taxes on it. Add up enough land owners selling land to pay the taxes and suddenly those sales can put downward pressure on land values.<br /><br />FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-22871744384689452802016-01-29T04:29:40.114-06:002016-01-29T04:29:40.114-06:00I think your dismissal of property taxes as "...I think your dismissal of property taxes as "bad" (discouraging wealth accumulation) is premature, as "everything" depends on real property. Thus, a property tax would have weak (if any) marginal effects. <br /><br />Looking at benefits, you have low transactions costs (land register = tax register), no need to track beneficial ownership, easy valuation (a combo of purchase price plus recent equivalent sales), and stable revenues. What's the downside? Rich people own most property and would lobby FURIOUSLY to keep taxes on income (so they can be dodged). <br /><br />Thoughts?David Zetlandhttps://www.blogger.com/profile/11677758798533719965noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-29450649965141136362016-01-27T21:17:29.282-06:002016-01-27T21:17:29.282-06:00Anonymous,
The problem with Wicksell's theory...Anonymous,<br /><br />The problem with Wicksell's theory is that it is time inconsistent. A lot of public goods are delivered in times of distress (foreign invader, natural disaster, public unrest, etc.) where increased taxation can make a bad situation worse. And so financial markets (debt / equity) exist to smooth over that gap in time between when bad things happen and when tax revenue becomes available to pay for the remedies.<br /><br />The question then becomes how should tax revenue be allocated to service a build up of prior government obligations.<br /><br />"However, to get anywhere towards a better tax system, we need to take politicians' self interest out of the equation -- in other words, taxes are too important to leave to the pols. And we have a small hurdle in the Constitution to reach that end."<br /><br />It is a small hurdle, but it is not insurmountable. I agree with the sentiment though, if taxes are to be a macro oriented policy tool, then Congress and political give and take must be removed from the equation.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-32309688468033991312016-01-27T09:15:28.337-06:002016-01-27T09:15:28.337-06:00Alan,
As with most "major" changes in g...Alan,<br /><br />As with most "major" changes in government policy, the creation of the Federal Reserve began first with economic upheaval (Panic of 1907) and then political upheaval (Democratic Party sweep in the 1912 elections).<br /><br />https://en.wikipedia.org/wiki/Party_divisions_of_United_States_Congresses<br /><br />From 1897 to 1911, the Republican party controlled the U. S. Senate, the U. S. House of Representatives, and the Presidency. Then in 1912 the Democrats took over capturing the Senate, the House, and the Presidency.<br /><br />The driver of that Democratic takeover was a fracturing of the Republican Party and the creation of the short lived Progressive Party.<br /><br />https://en.wikipedia.org/wiki/Progressive_Party_(United_States,_1912)<br /><br />The political will behind the creation of the federal reserve began earlier with the Panic of 1907, Senator Nelson W. Aldrich (Republican from Rhode Island), and the National Monetary Commission.<br /><br />https://en.wikipedia.org/wiki/Nelson_W._Aldrich<br />https://en.wikipedia.org/wiki/National_Monetary_Commission<br /><br />There are some good books out there that describe the creation of the central bank from an economic and political perspective.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-32535156237637949612016-01-26T21:23:12.663-06:002016-01-26T21:23:12.663-06:00Frank, thanks for explaining and I get it now. I&#...Frank, thanks for explaining and I get it now. I'm entirely ignorant of what powerful Reps and Senators thought when they created the Federal Reserve, but my imagination's not strong enough to picture the Ways & Means or Finance Committee members agreeing to cede power to technocrats. Were there House and Senate "Monetary Committees" when the Fed was birthed? Alan Fortini-Campbellnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-85479900460128062302016-01-26T09:43:15.604-06:002016-01-26T09:43:15.604-06:00Anonymous,
"Why do you believe and independe...Anonymous,<br /><br />"Why do you believe and independent monetary policy is the same thing as the government never borrowing money?"<br /><br />Interest rate adjustments made by the federal reserve can negatively impact the fiscal position of an indebted federal government. In the extreme case, the federal government can end up in a position where interest payments on existing debt can exceed available tax revenue.<br /><br />"Do you understand the tools available to the Fed to conduct monetary policy and that they involve the buying and selling of Treasuries?" <br /><br /><br />Certainly. I also understand that the U. S. central bank (Fed) was created in 1913. The federal open market committee was not created until 1933 (20 years later). And so for a period of about 20 years, the central bank operated without the tool of open market operations.<br /><br />And so, by eliminating government debt you avoid the situation where interest rate adjustments made by the central bank negatively affect the government's fiscal position and you return the central bank to it's pre-1933 status.<br /><br />"I miss my days at Chicago where rational, informed discourse was the norm..."<br /><br />I would think an informed discourse between two people would include knowing each person knowing the other's name - oh my indeed.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-76945717697940735402016-01-26T09:02:16.198-06:002016-01-26T09:02:16.198-06:00Frank,
Oh my! Where to start?
Why do you believ...Frank,<br /><br />Oh my! Where to start?<br /><br />Why do you believe and independent monetary policy is the same thing as the government never borrowing money? Do you understand the difference between the Treasury Department and the Federal Reserve? Do you understand the tools available to the Fed to conduct monetary policy and that they involve the buying and selling of Treasuries? <br /><br />As an aside to John, thank you for teaching me the basics of monetary policy so many years ago! I miss my days at Chicago where rational, informed discourse was the norm.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-48035590212072891452016-01-25T22:20:18.389-06:002016-01-25T22:20:18.389-06:00Took me a little while to find it but:
http://joh...Took me a little while to find it but:<br /><br />http://johnhcochrane.blogspot.com/2012/02/fed-independence-2025.html<br /><br />From the words of John Cochrane:<br /><br />"My preferred answer would be to save the independence, competence, and a-political nature of the Federal Reserve."FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-45608195721676080632016-01-25T21:00:10.378-06:002016-01-25T21:00:10.378-06:00Donk,
"It's a complete nonstarter and si...Donk,<br /><br />"It's a complete nonstarter and silly."<br /><br />So silly that numerous central bankers including Greenspan here:<br /><br />http://www.bloombergview.com/articles/2015-03-18/central-bank-autonomy-is-under-attack<br /><br />"Against an ever-shifting political backdrop, monetary policy can provide a bedrock of economic certainty -- but only if central bankers can discharge their duties without fear of government interference."<br /><br />Or Bernanke here:<br /><br />http://www.federalreserve.gov/newsevents/speech/bernanke20100525a.htm<br /><br />"Chief among these aspects has been the ability of central banks to make monetary policy decisions based on what is good for the economy in the longer run, independent of short-term political considerations."<br /><br />Or the current Fed Chair Janet Yellen here:<br /><br />http://www.bloomberg.com/news/articles/2015-07-23/yellen-fed-s-independence-under-attack-despite-economic-rebound<br /><br />"Yellen and her allies in academia argue that obliging the Fed to obey a monetary policy rule—even one it set for itself—would reduce the bank’s flexibility and increase the risk of mistakes."<br /><br />Have all come out and said as much - I agree with them despite how "silly" or "ridiculous" it may sound to you.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-42379789486770029112016-01-25T19:29:43.210-06:002016-01-25T19:29:43.210-06:00I agree with Knut Wicksell's theory of just ta...I agree with Knut Wicksell's theory of just taxation -- consumers of public goods should be taxed in proportion to the utility they get from government expenditures. Yes, you'd have to make some guesses at marginal utilities to get to even a decent approximation of that, but trying is better than ignoring the basic principle. However, to get anywhere towards a better tax system, we need to take politicians' self interest out of the equation -- in other words, taxes are too important to leave to the pols. And we have a small hurdle in the Constitution to reach that end. Meanwhile, we will be taxed to get the pols reelected. Simple public choice in action, actually. In plain English, it's hopeless already.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-7703669912315712802016-01-25T17:02:24.848-06:002016-01-25T17:02:24.848-06:00No question he has contradictions. But I don'...No question he has contradictions. But I don't take anything I've said back or regard it as untrue. John started with a premise of the need for tax reform and why it has been so hard to achieve. It garnered interest with good thoughts on both matters. Then he listed a lot of ideas, some of which may be contradictory, but his opening was good enough that I read on. Your opening comment, was something along the lines of "the number 1 goal of tax reform should be to make fiscal policy independent of monetary policy." It's a complete nonstarter and silly. <br />The Donkhttps://www.blogger.com/profile/14153840277624094270noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-71545692704035531972016-01-25T03:22:49.978-06:002016-01-25T03:22:49.978-06:00The goal of taxation to raise revenue for the gove...The goal of taxation to raise revenue for the government is important in maintaining our economy. I agree with what was stated in this article. I also agree with taxing consumption rather than other incomes. I believe we should have more of an incentive to save and invest in order to help our money grow, rather than saving and spending it on taxes. Therefore we would be promoting progressive taxation. Changes in the way people are taxed could promote more investments and could help our economy to grow in positive ways.Christina Rnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-9949976714854965932016-01-25T00:46:05.664-06:002016-01-25T00:46:05.664-06:00Bitcoin is coming soon.., to much waste in current...Bitcoin is coming soon.., to much waste in current arrangement. atbMPAhttps://www.blogger.com/profile/05204223669169160577noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-11055973514850175752016-01-24T22:57:41.782-06:002016-01-24T22:57:41.782-06:00Good piece. Tax simplification, as always, a great...Good piece. Tax simplification, as always, a great idea - both personal and corporate. Frustrating since "both sides" can agree on this being obvious. As noted, eliminate corporate tax - eliminates all the distortions, breaks, etc. On a wonky point, it should be noted that lower corporate taxes will increase profits only if they result in a higher deficit - that is, if the lower taxes are not offset by spending cuts. If spending cuts are made such that deficits remain the same, the drop in business revenues will about match the drop in business taxes - leaving profits unchanged. For those unfamiliar with "how profits work" check "Kalecki equation" used by economists (Public sector deficits are one of the four principle contributors to after-tax profits). Charles DuBoishttps://www.blogger.com/profile/17139978413665218618noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-31281390909720043162016-01-24T20:18:21.206-06:002016-01-24T20:18:21.206-06:00Okay,
You are perfectly within your rights to dis...Okay,<br /><br />You are perfectly within your rights to disagree. But let me show you what ridiculous looks like. From above:<br /><br />"That means lower marginal rates—the additional tax people pay for each extra dollar earned—and a broader base of income subject to tax. It also means a massively simpler tax code."<br /><br />So John wants a broader base of income subject to tax.<br /><br />"Second, the government should tax consumption, not wages, income or wealth"<br /><br />So John wants no taxes on income.<br /><br />"First, the corporate tax should be eliminated."<br /><br />And this broadens the tax base? Sounds to me like a narrowing of the tax base.<br /><br />"Taxes on capital gains discourage people from moving or reallocating capital toward their most productive uses."<br /><br />Again, eliminating taxes on capital gains broadens the base or narrows it?<br /><br />I could go on but there are far too many contradictions to enumerate. And yes, despite the "ridiculousness" of it all, I did manage to read through John's entire Op Ed.<br /><br /> FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-87567686241543523572016-01-24T18:50:50.481-06:002016-01-24T18:50:50.481-06:00I was referring to your "No."I was referring to your "No."The Donkhttps://www.blogger.com/profile/14153840277624094270noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-26995318888265027182016-01-24T18:05:20.624-06:002016-01-24T18:05:20.624-06:00Alan,
Your statement:
"But the goal of thos...Alan,<br /><br />Your statement:<br /><br />"But the goal of those who actually make our tax laws is different. Members of the Senate Finance and House Ways and Means committees derive power from their perceived influence over tax carrots and sticks."<br /><br />The only point I was making is that there is a prior history of Congress ceding power to an apolitical organization, namely the creation of the Federal Reserve and legal tender. And so it is not totally unreasonable to picture a scenario where power is forfeited by the House Ways and Means and Senate Finance committees.<br /><br />FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-32730619310257559432016-01-24T16:54:45.688-06:002016-01-24T16:54:45.688-06:00Each dollar spent must come from taxes now or be b...Each dollar spent must come from taxes now or be borrowed and repaid with taxes raised later. Taxes raised later can be the explicit collection of nominal dollars or the hidden taking of inflation.<br /><br />I wonder what the Constitution would have looked like if the Founders had thought more about monetary policy, fractional reserve banking and fiat currency. Alan Fortini-Campbellhttps://www.blogger.com/profile/08456637914046538933noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-27324197591903617372016-01-24T16:23:31.637-06:002016-01-24T16:23:31.637-06:00The first statement was a quote from above:
"...The first statement was a quote from above:<br /><br />"The first goal of taxation is to raise needed government revenue with minimum economic damage."<br /><br />I wouldn't call that statement ridiculous even though I don't agree with it.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-87420010549975182762016-01-24T16:08:37.758-06:002016-01-24T16:08:37.758-06:00When you start with a ridiculous statement, no one...When you start with a ridiculous statement, no one is going to bother reading the rest.The Donkhttps://www.blogger.com/profile/14153840277624094270noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-81409873387078196252016-01-24T09:17:16.823-06:002016-01-24T09:17:16.823-06:00Alan,
"In the long term, the quality of the ...Alan,<br /><br />"In the long term, the quality of the revenue-raising system will matter less if spending is reduced relative to the size of the economy."<br /><br />Except that the government is permitted to borrow to make up the difference between taxes received and money spent.<br /><br />"But the goal of those who actually make our tax laws is different. Members of the Senate Finance and House Ways and Means committees derive power from their perceived influence over tax carrots and sticks. Consequently, whatever degree of simplification might be achieved spasmodically after the election of an enlightened candidate will inevitably be undone by succeeding Congresses. "<br /><br />Bingo, you have hit the nail on the head here. To get tax policy right and keep it from going off course, consider the history of U. S. government sponsored money. From 1862 to 1971, the U. S. Treasury issued legal tender called U. S. notes. From 1913 to 1971 those U. S. notes circulated in parallel with Federal Reserve legal tender notes created by the U. S. Central bank. More information on U. S. notes can be found here:<br /><br />https://en.wikipedia.org/wiki/United_States_Note<br /><br />The quantity of U. S. Notes in circulation was determined by Congress. By 1971 Congress had ceded the power of money creation to the central bank.<br /><br />This ceding of power must also occur with tax policy to have any hope of long term success.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.com